Analysts: Pentagon Needs To Get Strategic on Budget, Likely Won't

Jan. 10, 2014 - 02:06PM
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Analysts are urging the US Defense Department to make tough budgetary decisions over an array of problems, including increases in personnel costs. Here, sailors aboard the frigate Taylor depart Naval Station Mayport, Fla., for a seven-month deployment. (MC2 Marcus L. Stanley/US Navy)

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NEW YORK — Now that it appears cuts to US defense spending won’t be removed any time soon, analysts are urging the Defense Department to start making critical strategic choices to live within its means. But while such tough decisions are increasingly necessary to ward off looming financial challenges, such as sharp increases in personnel costs, the analysts expect little to change.

Speaking in a series of panels at the Bank of America Merrill Lynch/Defense News 2014 Defense Outlook Forum, analysts from a broad range of political backgrounds described a defense environment that has radically changed following the recent signing of a federal budget deal by Rep. Paul Ryan, R-Wis., and Sen. Patty Murray, D-Wash. That deal softened the rate of defense spending decline over the next two years, but kept the same low point. It partially paid for the more gradual decline by slightly altering the annual cost of living adjustment (COLA) in pay to military retirees.

Previously, DoD resisted significant budget changes, instead arguing for the rollback of the sequester. But the two-year budget deal likely proves no major reversal is coming, analysts said.

“Buying time for a saving event is a fool’s errand,” said Michael Bayer, CEO of Dumbarton Strategies and chairman of the Pentagon’s Defense Business Board. “The department has to make really awful changes now.”

The major problem confronting DoD? Increases in the costs of benefits for personnel are devouring an ever-growing percentage of the budget. Trying to reform these benefits has always been politically sensitive because of fear in Congress that it might appear to be abandoning the troops.

Even when some minor changes are made, such as the COLA savings in the budget deal, the reaction is violent. Veterans groups are fervently campaigning to reverse the move, and most believe Congress soon will change course.

“What’s ugly is that this is a further setback in this discussion when Congress walks away from it, and they will walk away from it,” said Mackenzie Eaglen, a fellow at the American Enterprise Institute.

In addition to the difficulty in tackling one of DoD’s major structural problems, there is a false perception the budget deal “saved” defense, she said. It has convinced some that bigger changes aren’t needed, even though the deal did nothing to change the upcoming low point for spending.

“What this is going to do is that when Secretary Hagel submits his ’15 budget and it has a lot of the same worn-out proposals to rein in some of those overhead costs, Congress is going to take a pass because they’re going to say, ‘Hey, we just passed this budget and it fixes your problem,” Eaglen said. “Similarly, DoD is going to have to punt on any kind of creative destruction, rethinking the military of the future.”

The Pentagon’s resistance to planning for reduced spending levels isn’t new, as the same budget optimism showed up during the last downturn.

“In the previous downturn, which really started in ’86, you could see that the Pentagon was still submitting budget requests that assumed the budget was going to keep going up like it had been, and it was several years after the budget had been declining before they finally realized, oh yeah, the budget is actually going to go down, and even then they didn’t plan for it,” said Todd Harrison, a senior fellow at the Center for Strategic and Budgetary Assessments.

That optimism, likely unrealistic, hasn’t shown any signs of abating.

“Hope always springs eternal that we won’t have to make choices,” said Gordon Adams, a fellow at the Stimson Center who ran national defense budgeting for the Clinton administration. But, “choices need to be made; the drawdown is, in my judgment, going to continue.”

The choices currently being made aren’t the big ones that are necessary, Eaglen said.

“There’s a very different budget outlook for the department as far as how to cut when you take the full plunge, when you jump in head first and assume sequestration over 10 years vs. when you go year by year, chipping away at the margins,” she said. “What we’re going to do now is we’re not going to re-envision anything.” ■